It is crucial for managers to understand the mechanics of supply and demand both in the short run and the long run to maximize on profit (Decker, 2014). This study analyzes examples of companies whose business were either helped or hurt by changes in supply or demand in the market in which they are competing. In a perfect competition, the forces of demand and supply are the major determinants of the market price (Keat, Young and Erfle 2013). It is fundamental for managers to understand the dynamics of the demand and supply forces in order to differentiate their products through engaging in production promotion, brand name, and packing to increase customer awareness in order to outcompete rival companies and record more sales.
ABZ Company selling yoghurts increased its price from $ 10 dollars per 500 ml to $ 12 dollars. Consequently, the company lost its customers to rival companies, Smart Dairy and Brookside Company since they maintained their prices at $ 11dollars. Thus, ABZ Company was hurt by recording a decrease in demand of yoghurt while the competing companies recorded higher returns from the increased demand.
Everten Company that sells Kitchenware products recorded an increase in its sales due to reducing the price of its products by $ 2 dollars and fixing transportation fee at $ 6 dollars regardless of the distance. Consequently, Robin Kitchenware Company, a competitor of Everten Company lost most its customers to Everten Company.
It important for managers to understand and be alert on the mechanics of supply and demand to avoid incurring losses due to product overpricing, stocking obsolete products, or through undervaluing product (Fanning & Campling, 2013). Additionally, it is important for managers to study consumer behavior since it dictates demand and supply of products in order to align business to demand to avoid incurring losses.
Keat, Young and Erfle (2013). Managerial Economics (7th ed.). Pearson.
Decker, K. (2014). Trading post. Retrieved October 19, 2015, from
Fanning, C., & Campling, J. (2013). The general theory of profit maximization. New York: St. Martin’s Press.